models
Independently, the terms ‘social’ and ‘enterprise’ read as an oxymoron - implying social work cannot be commercial and an enterprise should only be concerned with profits. The definition of social enterprise is loosely used to describe an organization or an activity that creates social benefit. Further revisions of this definition purports that social enterprise maintains a strong social purpose, demonstrates high levels of innovation, and at the same time has a market facing strategic approach (Source: Nicolls and Cho 2006). Evidence has demonstrated that social plus enterprise as a business model can solve many social problems. Strong examples can be found on our Social Ventures Catalogue as well as in our Portfolio of social enterprises.
At Avantage Ventures, we have broadly categorized social enterprises into three types for the purpose of our advisory work. We are interested in social enterprises that express a full range of social and environmental values in their daily commercial activities. These models are:
1) Charities with Sustainable Commercial Activity: As the title suggests, these are charities that have commercial activity generating revenue. Rather than by grants, commercial activity is supported by the user or contract fees for the provided product and service. The trading activity should breakeven, and in cases where it generates excess profits these are channelled back to the charity.
2) Socially Driven Businesses: These are businesses that at their core are socially designed and driven. Socially driven businesses seek to maximise the social and environment impact from their activity. These ventures are typically formed on the basis of providing a social product or service to the target market and fill a product or service gap. These businesses are breaking even or even achieving profitability and excess profits are usually re-invested back into the business for further expansion. Profit distribution to stakeholders may be in the form of limited dividends or bonuses, dependent on each company’s policy and mandate.
3) Socially Responsible Businesses: These businesses operate in many ways like a traditional business, but contribute to some social or environmental good through ethical and responsible business practices that are engrained in their mission. As these enterprises operate like commercial businesses, profits generated through activities may be distributed to stakeholders, with a strong commitment to contributing back to their community or the environment through additional activities. Societal, environmental, and financial outcomes are maximized equally by socially responsible businesses.
The below table contains further explanation of social entrepreneurship models. Avantage Ventures does not believe that any particular model is superior in social or financial return. The three models featured are not all encompassing of the entire social entrepreneurship models in the marketplace – they simply serve to segment groups we work with.
